OCTOBER 2019 Learn more about NCIA’s Policy Council TheCannabisIndustry.org/PolicyCouncil National Cannabis Industry Association TheCannabisIndustry.org ADAPTING A REGULATORY FRAMEWORK FOR THE EMERGING CANNABIS INDUSTRY National Cannabis Industry Association (NCIA) Adapting a Proven Regulatory Framework for the Emerging Cannabis Industry Table of Contents 1 EXECUTIVE SUMMARY 8 INTRODUCTION 11 LEGAL STATE OF CANNABIS IN THE UNITED STATES 13 CURRENT LEGISLATIVE EFFORTS 14 CANNABIS PRODUCTS 15 REMOVING THE OUTDATED REGULATORY STRUCTURE 16 ESTABLISHING A NEW REGULATORY FRAMEWORK 19 SOCIAL EQUITY 20 LANE #1: Pharmaceutical Drugs 23 LANE #2: Ingested, Inhaled, or Topically Applied THC Products 31 LANE #3: Ingested and Inhaled Cannabinoid Products with Low/No THC 40 LANE #4: Topically Applied Low THC Products 43 CONCLUSION National Cannabis Industry Association (NCIA) Adapting a Proven Regulatory Framework for the Emerging Cannabis Industry Executive Summary For almost a century, the United States government has criminalized the production, distribution, and sale of cannabis. However, this era of prohibition has been crumbling in the face of voter and, increasingly, legislative revolt. Even as these federal laws remain unchanged, most states have legalized some form of medical cannabis, and eleven states and the District of Columbia have changed their laws to regulate adult-use cannabis in a manner similar to alcohol. Moreover, Congress recently removed hemp (and any cannabinoids derived therefrom) from the Controlled Substances Act (CSA), legalizing a subset of cannabis plants and derivatives that contain less than 0.3% THC. With momentum building and public support ever-increasing, the critical question has shifted from “Should cannabis be legalized?” to “How will we regulate the commercial cannabis market at the federal level?” As the leading policy voice for the state-regulated cannabis industry, the National Cannabis Industry Association (NCIA) herein offers reasoned and responsible approaches that the federal government could adopt to regulate cannabis products after the last vestiges of federal prohibition are removed. The diversity of products that contain cannabis means that a “one-size-fits-all” regulatory framework would be ineffective. Under such a framework, some products would be overregulated, while others might be underregulated. Instead, different regulatory structures, or “lanes,” could be utilized based on the characteristics and intended uses of the products to leverage existing federal regulatory expertise. This will lead to an effective and efficient review process for existing government agencies that avoids unnecessary bureaucracy, costs, and delays for cannabis companies. Indeed, because human consumables are already regulated by the federal government through a variety of regulatory lanes designed for these purposes, most cannabis products could simply follow analogous products already being sold legally through these lanes. By 1 National Cannabis Industry Association (NCIA) Adapting a Proven Regulatory Framework for the Emerging Cannabis Industry building off existing systems and making modifications where necessary, all cannabis products could be properly regulated by existing federal agencies without reinventing the wheel. Currently, because of marijuana’s status as a Schedule I drug under the CSA, the Drug Enforcement Administration (DEA) is the primary federal regulator of cannabis, with criminal enforcement serving as the sole regulatory tool for the law enforcement agency. The first and most important step of a comprehensive regulatory system for cannabis would be for Congress to remove marijuana and its derivatives, including delta-9 tetrahydrocannabinol (THC), from the CSA, otherwise known as “descheduling.”1 Descheduling is the only way for cannabis to be regulated in the manner proposed herein, and it is the only way to truly reform federal cannabis policy in a sensible manner. Our proposal calls for cannabis products, like other highly regulated consumables, to be regulated by the government agencies that currently regulate most food and drugs, primarily the Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the U.S. Department of the Treasury. Under our plan, cannabis products would be divided into four categories, based on chemical components, safety, intended use, and consumption method. Each of these groups would be regulated through a separate regulatory “lane” tailored to the public policy issues raised by that particular classification. The four lanes are: (1) Pharmaceutical drugs; (2) Ingested, inhaled, or topically applied products with more than de minimis amounts of THC; (3) Ingested and inhaled products with de minimis amounts of THC; and (4) Topically applied products with de minimis amounts of THC. Lane #1 — Pharmaceutical drugs (e.g., Epidiolex; Marinol) (Regulated Like Prescription/OTC Drugs; Lead Federal Regulator: FDA) Lane #1 includes all products approved as pharmaceutical drugs, over which FDA currently exercises jurisdiction under the authority of the Federal Food, Drug, and Cosmetic Act. This category currently includes approved drugs such as Epidiolex and Marinol and would include any cannabis derivative (whether extracted or synthetic) that is approved as 1 Some politicians advocate moving marijuana to a different/lower schedule (rescheduling within the CSA). However, rescheduling would limit most cannabis products to sales only through the current pharmaceutical drug system (Lane #1). 2 National Cannabis Industry Association (NCIA) Adapting a Proven Regulatory Framework for the Emerging Cannabis Industry Lane #1 — continued a new drug or authorized for use as an active pharmaceutical ingredient under a tentative or final over-the-counter (OTC) monograph. Products in Lane #1 are subject to FDA’s existing rigorous drug approval process. Once the products have been approved by FDA, substantiated disease claims could be made about them, consistent with the terms of the FDA’s approval and existing limitations governing off-label uses. These products would be sold alongside prescription or OTC drugs, depending on whether they are approved for use by prescription or OTC. Necessary Legislation: Lane #1 requires no legislative modifications, other than “descheduling” cannabis to facilitate further drug research and vest FDA with sole regulatory authority. Lane #2 — Ingested, inhaled, or topically applied products with more than de minimis amounts of THC (+0.3%) (Regulated Like Alcohol; Lead Federal Regulator: TTB) Lane #2 includes edible, inhalable, and topically applied cannabis products that are not approved as pharmaceutical drugs by FDA under Lane #1 but that contain more than a de minimis amount of THC (greater than 0.3% by dry weight). The intoxicating properties of these cannabis products raise public policy and safety concerns that are not present for the low- THC products in Lanes #3 and #4. Accordingly, these products would be sold through a network of state-licensed retail stores to individuals meeting state age requirements and/or qualifying medical condition requirements, as appropriate. Here, the states would assume the primary regulatory responsibility for these products, with TTB playing a significant oversight role at the federal level. Of course, thirty-three states already have regulations in place for the sale of medical marijuana through state- licensed dispensaries, and eleven states have legalized recreational sales through state-licensed retail facilities. 3 National Cannabis Industry Association (NCIA) Adapting a Proven Regulatory Framework for the Emerging Cannabis Industry Lane #2 — continued Necessary Legislation: Congressional action would be needed to deschedule marijuana and THC (above 0.3%). Legislation would also be needed to grant authority to TTB to regulate these substances (similar to the regulation of alcohol) and to facilitate interstate shipment of the products, as the 2018 Farm Bill did for hemp. Consistent with the model for alcohol, FDA and the states would retain important regulatory roles. Congressional action would be needed to authorize FDA to establish manufacturing requirements for inhalable products. Most cannabis products currently being sold through state adult-use or medical cannabis programs would be regulated through this lane. Lane #3 — Ingested and inhaled products with de minimis amounts of THC (<0.3% THC) (e.g., CBD, CBN, and CBG) (Regulated Like Food/Dietary Supplements; Lead Regulator: FDA) Lanes #3 and #4 are the least restrictive lanes and cover products containing no more than de minimis amounts of THC. Currently, federal law provides for the inclusion only of hemp and hemp derivatives with a THC concentration below 0.3%. Numerous non-intoxicating cannabinoids such as CBD, CBN, THC-A, and THC-V may be derived from either the marijuana plant or the hemp plant. The 2018 Farm Bill created an arbitrary dividing line between marijuana and hemp plants, based entirely on their THC concentration. This has resulted in an overregulation of popular non-intoxicating products based on the THC level of the plant source material instead of the THC level of the finished product (e.g., CBD derived from the marijuana plant). We propose remedying this problem by classifying any final product containing less than 0.3% THC within Lane #3, rather than focusing on the THC content of the plant source material or of any intermediate product. Based on existing research, these low-THC products